A New Kind of Early Childhood Investment: Getting a 'Head Start' on Saving

Talk of universal pre-K and similar early childhood interventions has been all over the news in recent months, and even more so since President Obama's State of the Union speech. The president is quoted as saying, "Research shows that one of the best investments we can make in a child's life is high-quality early education." The news is that this proposal received applause from both John Boehner and Joe Biden, not to mention that the push for universal pre-K has received growing bipartisan support. (Though, real interest in early childhood interventions can be measured in part by the amount of funding allocated toward the cause).

There is good reason to invest in early childhood interventions. Interventions like pre-K and Head Start that target children at young ages are associated with better developmental, educational, and economic outcomes across the life course. Much of children's development takes place in early childhood from birth to age five, meaning that investments in early childhood may have meaningful impacts on children's cognitive-psychological, social, and linguistic development. Development in these areas can prepare all children for success in kindergarten and eventually their economic and educational futures. Rather than intervening later in life, early childhood interventions take a preventive approach for providing opportunities for success across the life course and have the potential to produce long-term, positive returns to individual children and to society as a whole.

In absence of universal early childhood interventions, families are the primary source of early investments in children. The capabilities of families to make these investments are driven in part by the economic resources to which they have access. Since families have drastically different resources, they also have drastically different capabilities to facilitate their children's development. For example, not only does an affluent family likely have adequate economic resources to afford engaging and educational toys for their child; this family may also have the resources to pay someone to cut the lawn or to use a car to pick up groceries rather than taking the bus--economic resources that may afford the affluent family with much needed time to converse and engage with their child (not to mention the much needed mental energy to do so). The poor family with few economic resources may struggle to afford groceries, rent, or other basic needs, let alone engaging and educational toys. Moreover, their worries about basic needs may crowd out the mental energy needed to converse and engage with their child in ways that stimulate healthy development and promote positive expectations for the future.

In part for these reasons, we see that children growing up in poverty develop lower cognitive capacity, produce fewer vocabulary words, and struggle withnumeracy significantly more often than children growing up in well-resourced or affluent families. Children growing up in poverty may arrive to kindergarten unprepared, starting well behind their affluent peers. These children may struggle to catch up and perhaps never do so. Thus, early gaps in development and achievement may expand exponentially across the life course and influence their economic and educational futures. As poverty affects millions of children in the United States each year and is a growing economic condition, we need preventive, economic interventions to right these unequal paths before it is too late and to invest in all children so they have better opportunities to reach their life's full potential.

As such, in addition to conversations about early childhood interventions, we should also talk about a new kind of early childhood investment: Child Development Accounts (CDAs). CDAs -- specially designed accounts opened universally in children's own names to help them save for and invest in their futures--are a preventive, economic intervention that can complement early childhood interventions and advance their mission of helping children reach their full potential.

CDAs are preventative because they engage children and their families early in life (ideally from birth), before the effects of poverty on development and achievement become pronounced. CDAs are related to children's educational outcomes like improved achievement and increased college enrollment and graduation. Some evidence also suggests that CDAs may relate to their future economic outcomes, such as established and maintained relationships with mainstream banking institutions and diversified asset portfolios. Moreover, CDAs may relate to children's improved social-emotional development, which may be important for early achievement in school. Recent findings from a randomized controlled study show that CDAs opened at birth have positive effects on children's social-emotional development at approximately age four. (Notably, the researchers point out that these effects of CDAs on social-emotional development were about consistent with the effects of Head Start programs). The researchers theorize that the positive effects of this economic investment work through parents' interactions with and expectations for their children. Relationships between children's early savings account ownership and these important life outcomes bolster the potential of CDAs as an effective intervention for narrowing developmental and achievement-related gaps that emerge early in the life course, before they become difficult and costly to reverse.

We can think of CDAs as helping children and their families get a "head start" on saving -- saving that may afford children and their families from all backgrounds with opportunities to experience improvements in early development and achievement and future economic and educational success. In addition to conversations about expanding traditional early childhood investments to all children, we should consider the potential of CDAs for expanding all families' capabilities for making economic investments in their children.

Dr. Terri Friedline is an Assistant Professor of Social Welfare at the University of Kansas. She has published extensively on savings and asset building, with her recent work focusing on the relationship between child development and CDAs. She is a Research Fellow at the New America Foundation in Washington, DC. She can be reached for comment at tfriedline@ku.edu or followed on twitter @TerriFriedline.